Tags: Cyprus | crisis | gold | dollar

ETF Securities’ Rhind: Cyprus Crisis Lends Support to Gold

Friday, 05 Apr 2013 08:12 AM

By Dan Weil

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Cyprus’ financial crisis has given support to gold prices, says Will Rhind, managing director of U.S. operations for ETF Securities.

“The Cyprus event certainly crystallized a lot of demand for gold,” he tells Yahoo.

The island nation ended up imposing capital controls and penalizing some bank depositors as part of its bailout.

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“Any kind of distrust or nervousness or uncertainty about paper money, [in this case the euro], typically lends itself to people feeling like they need some kind of store of value or hard asset in their portfolio,” Rhind explains.

“Of course one of the most liquid ways to do that is to buy a gold ETF [exchange-traded fund].”

The fact that the greenback just rose to a four-month high against the euro doesn’t preclude gains by gold, Rhind says.

“The dollar has historically had an inverse relationship to gold,” he notes. “However, there have been a lot of periods where that correlation broke down, due to a dislocation or stress event in the market.”

To be sure, “I think a bigger event will be needed to push gold forward from here,” Rhind maintains. “Typically we’ve seen that coming out of the eurozone … whenever there has been elevated risk.”

The precious metal has begun to lose whatever strength the Cyprus crisis gave it. Spot gold fell to a 10-month low of $1,539.74 an ounce Thursday.

“Gold is desperately trying to bounce, but it’s failing quite miserably,” Saxo Bank Vice President Ole Hansen tells Reuters. “It’s trying to react positively to negative [economic] news and dovish [monetary policy] comments, but sentiment is so shaken that it will take more than this.”

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